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Nuffnang

Sunday, December 30, 2007

2008 target @1,650 with baseline target @1,520. Based on our model, we have ascribed 1,650 points as our target for 2008, translating to a market price earnings ratio (PER) of 17x. From a bottom-up approach, our target is set at 1,520 or at mar ket PER of 15.6x, which also forms our baseline target for 2008. We believe our target is tangible given that the TMT (Tenaga Nasional Bhd, Malayan Banking Bhd and Telekom Malaysia Bhd), which have grossly underperformed the CI in 2007, is likely to support the uptrend of the market.

These counters collectively account for about 16% of the CI's total market cap and are at present bogged down by their respective niggling doubts, but should these uncertainties be alleviated, we reck on buying interests should flow back into these stocks. See table for a scenario whereby 1,650 points may be achieved.

Wednesday, December 19, 2007

The Relative Strength Index (RSI) is an extremely useful and popular momentum oscillator. The RSI compares the magnitude of a stock's recent gains to the magnitude of its recent losses and turns that information into a number that ranges from 0 to 100.

Calculation

Overbought/OversoldWilder recommended using 70 and 30 and overbought and oversold levels respectively. Generally, if the RSI rises above 30 it is considered bullish for the underlying stock. Conversely, if the RSI falls below 70, it is a bearish signal. Some traders identify the long-term trend and then use extreme readings for entry points. If the long-term trend is bullish, then oversold readings could mark potential entry points.

DivergenceBuy and sell signals can also be generated by looking for positive and negative divergence between the RSI and the underlying stock. For example, consider a falling stock whose RSI rises from a low point of (for example) 15 back up to say, 55. Because of how the RSI is constructed, the underlying stock will often reverse its direction soon after such a divergence. As in that example, divergences that occur after an overbought or oversold reading usually provide more reliable signals.

Centerline CrossoverThe centerline for RSI is 50. Readings above and below can give the indicator a bullish or bearish tilt. On the whole, a reading above 50 indicates that average gains are higher than average losses and a reading below 50 indicates that losses are winning the battle. Some traders look for a move above 50 to confirm bullish signals or a move below 50 to confirm bearish signals.

Example:

The DJI example shows a number of extreme readings as well as a negative divergence. In Mar-2007, RSI reached oversold for a brief moment to mark the low around 25. The next extreme reading (overbought) occurred after April and continue sustain above level 70 until June. Then it was moving sideway after a large advance that peaked in July-2007. The next positive divergence reading occurred in August. for another brief moment and marked the low around 35. In early of September, RSI moved back above 50 and into overbought territory in October. A negative divergence formed in first week of October and marked the high in the upper fifties. Then it moved down to level 30.

Sunday, December 9, 2007

The world's largest and most diverse financial exchange, the Chicago Mercantile Exchange (CME) may buy a 10% stake in Bursa Malaysia. Both exchanges are in talks to form a tie up that will involve the trading of CPO derivatives on CME.

The deal is currently being thrashed out by the relevant parties and is likely to be announced close to Christmas. The price tag for the sale, says a source, is within the RM20 per share range. (The counter closed Friday at RM14.20).

Government agencies or institutions own about 38% interest in Bursa Malaysia. The Minister of Finance Inc and the Employees Provident Fund has own 19% and 3% respectively in the local exchange. Noteworthy and as an analyst points out, Bursa Malaysia has a high foreign shareholding of 40%.

Earlier, CME had a 50-50 joint venture with Singapore Exchange (SGX) to list commodity futures on a Singapore-based platform called Jade. However, in the middle of November this year, the CME group abandoned the project, selling its stake in the venture to the core owner SGX. The partnership has been terminated, which opened the door for talks between CME and Bursa Malaysia.